Intel: Our Top Pick for 2023 is another undervalued company the market hates

intel (Nasdaq:INTC) have been hit by the market for years. The company’s market capitalization continued to wreck, dropping below $120 billion, with a single digit price/earnings ratio and a dividend yield of over 5%. As we’ll see throughout this article, the Intel The low valuation and unique strengths make it a valuable long-term investment.

Intel’s unique position

Intel has an incredibly unique position. There are 3 companies globally that are expected to have advanced foundry capacity by the middle of this decade. The first is TSMC (TSM). The second is SamsungOTCPK: SSNLF). The last is Intel. They each spend $10 billion in capital spending to try to maintain that status.

However, Intel has another unique feature. It is the only one out of 3 companies headquartered in the US good at A. The world’s largest economy and And it is a state that, under President Biden, has renewed its focus on making itself A powerhouse in the chip and semiconductor industry. The bill contains $52.7 billion in semiconductor incentives, and Intel should get $10-15 billion from that.

The bill announced $100 billion in manufacturing announcements from companies (including the Big Three above) that have announced plans to move manufacturing to the United States. However, as a US company, we expect Intel to continue to see strong interest and support from the government, which should help it in the long run.

Intel 3Q performance

Financially, Intel has to deal with the short term before it can outperform in the long term.

company 3Q results It saw gross margins of 45.9%, which was a significant drop year-over-year as revenue fell to $15.3 billion. The company’s EPS was above guidance, at about 13 P/E, but expectations are that gross margin and EPS along with revenue will decline through the end of the year. This is to be expected as the market continues to struggle.

Still, there’s something to be said about the company remaining profitable during a major capital-intensive transition and trading at a reasonable valuation based on low earnings.

Intel Industry Outlook

The company operates in a volatile industry, although it did get a big boost from COVID-19, but that’s now in decline.

The company’s forecast for 2023 TAM is roughly 285 million units or a 5% drop from 2022, although it’s in line with pre-COVID-19 numbers. The company’s new long-term TAM projection is 300 million units annually, which we feel a little optimistic, but certainly reasonable given the continued growth in access to the technology.

The main takeaway here is that (at least) from Intel’s point of view, their prediction is that the permanent decline of the PC market has stopped.

It’s Intel’s time to shine or fail

Intel is rapidly modernizing its business, and the company operates in an industry where demand is high. The demand for computing resources is expected to continue to grow exponentially. For those looking to invest in Intel, the thing worth keeping in mind is that it is now Intel’s time to shine or fail.

We expect the company to shine. The company is finally revamping its business and spending billions of dollars where needed. Looks like the company is on the right track for Intel 4, Although there are rumors of delays. The latest rumors suggest that the company will release Intel 4 mobile CPUs but will update to Intel 7 for desktop CPUs.

Intel moved to Apple (AAPL) a model of hybrid architecture with efficiency and performance cores, something AMD (AMD) has not been done, which is a big gamble for the company. It also introduces complexity. The company may feel that Meteor Lake Desktop CPUs simply aren’t worth the massive effort required. This combines with the fact that Intel 4 is the first EUV node.

As node values ​​become more and more meaningless (nothing in Intel 4 is actually 4nm), it becomes difficult to differentiate between CPUs. With different components, many commentators try to draw an equivalence, and that’s what Intel does by naming Intel 4 vs. TSMC’s N3 at 3nm. Intel needs to get Meteor Lake out the door to have a chance at 20A catching up.

Whether or not that happens remains to be seen, but with strong government support and renewed business, we’re excited for 2023.

message risks

The biggest risk to our thesis is what we just discussed above, the Intel implementation. The company can wow investors and deliver powerful processors with the N4 and lower nodes, or it can run into the same problem it did with the 10nm situation, as years of delays combine with struggles to keep the industry barely competitive.

The next 1-2 years will be telling, however, history shows that anxious investors will be justified.

conclusion

Intel is a company under transformation. Despite the risks associated with it, we make it our top investment recommendation for 2023 for several reasons. The first is that the company has increased tacit long-term government support because of the desire to bring semiconductor manufacturing back to the US.

The second is that the company has several markets where it can enter and achieve vertical efficiencies being the only company left to work on desktop CPUs. The company’s success in 2023 depends on whether it can release Intel 4 Meteor Lake CPUs as expected, and rumors continue to circulate. However, we are optimistic that the company will achieve its goals.